Money Matters - Simplified

Foreign Automakers Overtake Detroit Auto Majors

Over the past one year, foreign automobile manufacturers have been relentlessly pushing to get a firm grip on the American automobile market share. This July, they ended the reign of the Detroit automobile companies as leaders in market share.

Foreign Automakers Overtake Detroit Auto MajorsGet original file (9KB)

According to figures released by Autodata Corporation, a Woodcliff, N.J. based company specializing in automobile industry statistics, Ford Motor Company, Chrysler Group, and General Motors, the Big Three of American car making, together had a market share of 48.1 percent this July, leaving the foreign carmakers on top with 51.9 percent.

The overtaking by the foreign carmakers was seen as something inevitable. The main contributing cause has been an abysmal dip in car sales for the Detroit companies. Falling sales figures have ensured a steady erosion of their grip on the American market. A look at the numbers provided by Autodata for the past year says it all.

July 2006 saw the American manufacturers hold the edge with a 52-48. The foreign manufacturers steadily chipped away at this number, and by June 2007, they had brought it down to 50.2-49.8 in favor of the American manufacturers. By July, they had surpassed the Americans.

The foreign manufacturers had made the first dent in the infallible image of the American automobile manufacturers in the American market way back in 2000 November. That year, they had managed to take the lead in car sales, a lead they have been holding on to ever since.

However, the American manufacturers retained their overall lead in the automobile market thanks to their strong showing in the other areas – SUVs, pickups, and minivans. While the foreign manufacturers were trying to make a mark in these areas, fate lent them a big helping hand.

After Hurricane Katrina, SUV sales began to move southwards. The reason for this was the increase in gasoline prices after the hurricane. That trend of increased gasoline prices continued this year as well. At more than $3 a gallon, the sales of even the pickups started getting affected, allowing the foreign makers to squeeze past at the finish line.

The overtaking by the foreign brands comes in a year when even the big names in their stable, Toyota Motor Company and Honda Motor Company, have actually reported marginally declining sales. The dismal sales performance of the American brands helped offset this downslide and propel them to the top.

Analysts are saying that while the numbers themselves really didn’t mean too much, it was a huge psychological blow to the Detroit manufacturers. The industry has been staving off a challenge for the top spot from foreign automakers from Japan, South Korea, and Europe for the past 30 years.

While these companies have managed to set up close to two dozen plants across the United States during this time, the American companies have been closing down plants by the dozen.

With this kind of a background, and the numbers given earlier, the ascendance of the foreign brands in sales this year seemed a mere formality. Another factor that has helped the foreign carmaker is the trends the Detroit manufacturers have been following over the past year.

Over the past one year, automobile companies from Detroit have unleashed cutbacks to increase profitability. They have slashed sales to rental agencies as these were deemed unprofitable. Not only that, they have also kept in check various incentives. The strategy worked to an extent as Ford and G.M. declared Q2-07 profits, despite losses in North American operations. However, it did not do much to boost their sales, and that is where the foreign manufacturers pipped them to the post.

At Chrysler, on a comeback trail this year, sales declined by 4.6 percent compared to July 2006. At G.M., sales declined, on an adjusted basis, by 19.1 percent compared to July 2006. At Ford, it was a 16.7 percent downslide. Honda too announced a 3.2 percent downslide. Nissan was the only company to announce a 5.9 percent surge.

The year-to-date numbers are along similar lines. Ford’s sales numbers indicate a 13 percent slide, while G.M. declares a 9.9 percent slide. Toyota declared an upsurge of 5.5 percent for the year. Chrysler’s performance was a 2.8 percent decline from 2006, even after unleashing a range of vehicles over the last one year.

Individually, the ranking list now reads G.M., Toyota, Ford, Honda, and Chrysler, in that order. Toyota managed to oust Ford from its #2 position and push it down to #3.